Economic uncertainty kept rates on hold
FEARS over consumer spending and confidence prompted the Bank of England to keep interest rates on hold in April. Minutes from the monetary policy committee meeting showed two members voted for a rise in interest rates for the second month in a row, but the committee's seven other members voted for no change.
Paul Tucker, who has voted for an increase since February, and Andrew Large, one the MPC's more hawkish members, opted for a quarter point hike.
The MPC said a lack of data regarding the strength of household spending and consumer prices was behind its decision to freeze rates for the eighth month in succession.
The report said: 'Estimated consumption growth slowed more rapidly than expected in 2004 Q4. Information about expenditure on consumer goods suggested that this weakness had started in December and had persisted in the first quarter of this year.'
The risk of sharp falls in house prices and housing market activity had diminished, reducing one of the sources of downside risk to the forecast, they said.
Economists are expecting a rate rise sometime this year but the fact that none of the seven members switched their vote suggests that it is unlikely to come in May or June.
However, the MPC did suggest that the current rate of 4.75% was sufficient to control inflation, which it wants to keep below 2% until 2006. Figures from the Office of National Statistics yesterday revealed the Consumer Prices Index hit 1.9% in March, exceeding analysts' expectations.
The MPC said there were signs that the risk to household spending had crystallised to some degree. The outlook from most of the underlying determents of consumption, such as real incomes, jobs and wealth, had been resilient.
The seven members voting for a hold said more data was needed 'to assess further the extent and persistence of the apparent slowdown in household spending. 'An increase in the repo rate was not necessary this month to keep Consumer Prices Index inflation on track to meet its target in the medium term,' the report cited them as saying.
Howard Archer, chief UK economist with Global Insight, said: 'It is no surprise that March's 7-2 vote in favour of unchanged rates was repeated in April, as the data and surveys released between the two meetings was largely mixed and did little to clarify the committee's outlook for inflation and growth. This is evident in the minutes, with consumer spending remaining a particular focus of attention.'
